Chapter 5: Cost Behavior: Analysis and Use

A metiod for analyzing cost behavior in which an account is classified as wither VC or FC based on the analyst's prior knowledge of how the cost in the account behaves

A measure of whatever causes the incurrence of a VC.

Investments in facilities, equipment, and basic organizational structure that can't be significantly reduced even for short periods of time without making fundamental changes

An income statement format that organizes costs by their behavior. costs are separated into VC and FC categories rather than being separated according to organizational functions.

The amount remaining from sales revenues after all variable expenses have been deducted

The relative proportion of fixed, variable, and mixed costs in an organization

A variable that responds to some casual factor; total cost is the dependent variable, as represented by the letter Y: Y=a+bX

Those FC that arise from annual decisions by management to spend on certain FC items, such as advertising and research

A detailed analysis of cost behavior based on an industrial engineer's evaluation of the inputs that are required to carry out a particular activity and of the prices of those inputs

A method of separating a mixed cost into its FC and VC elements by analyzing the change in cost between the high and low activity levels

A variable that acts as a casual factor; activity is the independent variable as represented by the letter X: Y=a+bX

A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that minimizes the sum of the squared errors

Cost behavior is said to be linear whenever a straight line is a reasonable approximation for the relation between cost and activity.

A cost that contains both VC and FC elements

An analytical method required when variations in a dependent variabble are caused by more than one factor